FxWirePro: Aussie faces trouble with iron ore in decline

Last year’s dream rally seems to be over for Iron ore as it takes a heavy beating this year. Iron ore sharply declines to $75.45 per dry ton today, down almost 6.8 percent and it has now officially entered the bear market as it declined by more than 20 percent from its recent peak in February. Analysts are blaming supply/demand mismatch for this sharp decline and forecasts that price could decline further towards $55 per ton by the end of 2017. Increasing exports from Australia and Brazil continues to outpace the growth in demand in 2017. Demand from China, the biggest consumer could come down further as the rest of the world takes up protectionist measures against cheap Chinese Steel.

Australian Central Bank (RBA) governor Phillip Lowe warned in February that commodity prices are likely to come down again in the near future and the country should not take the then $90 per ton price as granted. Iron ore is the single most important commodity for the Australian economy, contributing about 4 percent to the GDP.

The Australian dollar has declined further and now testing around 0.75 area. The Aussie is currently trading at 0.753 against the dollar. If Iron ore continues to decline, the Aussie likely to test the next support around 0.72 area.